Some sites are reporting that Sony is cutting prices on the PlayStation 3, including our Gamesblog, but it's not yet clear how it's going to turn out. In the US, Sony is actually introducing a new 80GB model at the old $600 price, so the current 60GB machine drops $100 to make room. We'll need to see the final packages to know if it's just clearing shelves of slow-selling stock or is serious about establishing a new price point. If the bundles are the same, the extra $100 is terrible value for just 20GB of extra hard drive space.

As The New York Times notes: "Even after cutting the price, Sony will still have the most expensive game console available. An Xbox 360 with a 120-gigabyte hard drive sells for $480, but less powerful versions sell for less."

The big unknown is whether Xbox 360 sales are going to take a hit following "reports of widespread product failures," or whether Microsoft offering a 3 year warranty will renew buyer confidence. But it's clearly a set-back for Microsoft, and Sony might be able to take advantage.

Of course, Microsoft also has more room to cut the price than Sony. But that might threaten its plan to turn Xbox into a profitable business, as Peter Moore says, "in fiscal year 08".

Update: Michael Pachter, a Wedbush Morgan analyst, "expects the recently released Xbox 360 Elite to go from $479 to $399, the Premium model to see a drop from $399 to $349 and the Core system to be reduced from $299 to $249," reports GamesIndustry.biz. "We do not believe that the company is prepared to allow Sony to erode its pricing advantage," he says.